Maximal Extractable Value (MEV)

The practice of placing a transaction immediately before a known pending transaction to profit from its anticipated market impact. This is a core opportunistic MEV strategy.

• Example: A searcher detects a large pending DEX swap and submits their own swap transaction with a higher gas fee to execute first, then sells the acquired tokens into the now-altered price.
• Relies on mempool surveillance to identify profitable opportunities.

Placing a transaction immediately after a known pending transaction to capture value from its state changes. Often used in arbitrage or liquidation scenarios.

• Example: After a large DEX swap creates a price discrepancy between exchanges, a searcher's transaction arbitrages the difference.
• Liquidations: Bots back-run liquidation calls on lending protocols to claim collateral at a discount.

A specific, harmful form of MEV that front-runs and back-runs a victim's DEX trade, trapping it between two adversarial transactions.

• Mechanism: 1) Front-run the victim's buy order, driving the price up. 2) Let the victim's order execute at the worse price. 3) Back-run by selling the inflated asset for a profit.
• This directly results in increased slippage and worse execution for the end user.

A consensus-level MEV attack where validators or miners reorg the blockchain to replace a block and capture MEV that was claimed by a previous block producer.

• This undermines block finality and network security.
• Mitigated by proposer-builder separation (PBS) architectures, which separate the roles of block building and proposing.

MEV fundamentally reshapes blockchain economics and user experience.

• For Users: Results in network congestion, higher gas fees, and worse trade execution via slippage.
• For Validators/Stakers: MEV revenue becomes a significant portion of total rewards, influencing staking yields and validator centralization pressures.
• For Applications: DApps must design mechanisms (e.g., commit-reveal schemes, private mempools) to protect users.

The ecosystem of specialized actors that has emerged to capture and distribute MEV.

• Searchers: Run algorithms to find MEV opportunities and bundle transactions.
• Builders: Construct complete, profitable blocks using searcher bundles and order flow.
• Relays: Act as trusted intermediaries between builders and proposers/validators.
• Proposers/Validators: The final block proposer who selects the most profitable block from builders.

The most common MEV strategy, where a searcher profits from price differences of the same asset across different decentralized exchanges (DEXs) or liquidity pools within a single block. The searcher's transaction buys the asset at a lower price on one venue and sells it at a higher price on another.

• Example: Buying ETH on Uniswap and immediately selling it for a higher price on SushiSwap in the same block.
• Key Mechanism: Requires atomic execution to avoid price slippage and front-running.

A strategy where a searcher repays a borrower's undercollateralized debt on a lending protocol (like Aave or Compound) in exchange for the borrower's collateral at a discount, as defined by the protocol's liquidation incentive.

• Process: The searcher monitors loans and submits a transaction to trigger liquidation when the loan's health factor falls below a threshold.
• Profit Source: The discount on the seized collateral (e.g., 5-10%) minus gas costs. This is considered a "socially useful" form of MEV as it maintains protocol solvency.

A malicious strategy that targets a visible pending DEX trade. The searcher places one transaction before it (front-running) and one after it (back-running) to extract value.

1. Front-run: Buy the asset the victim is about to buy, driving its price up.
2. Victim's Trade: Executes at the worsened price.
3. Back-run: Sell the asset bought in step 1, profiting from the victim-induced price movement.

• Result: The victim suffers increased slippage, and the searcher pockets the difference.

A sophisticated and potentially chain-reorganizing attack where a validator or coordinated group exploits the ability to reorder past blocks for profit. This is a threat to blockchain finality.

• Mechanism: If a highly profitable MEV opportunity (e.g., a massive arbitrage) was missed in a recent block, a validator with sufficient stake might attempt to reorg the chain to create a new block that includes their own profitable transaction instead.
• Impact: Undermines settlement guarantees and is considered one of the most damaging forms of MEV.

This category encompasses niche, complex, or emerging extraction strategies that don't fit the major categories. It often involves interacting with multiple protocols or specific contract states.

• Examples:
  • NFT MEV: Sniping undervalued NFTs from minting contracts or exploiting floor price discrepancies.
  • Oracle Manipulation: Creating trades that profit from temporary inaccuracies in price oracles before they update.
  • Bridge Arbitrage: Exploiting price differences for assets between a blockchain and its Layer 2 or another chain via a bridge.

The most common MEV strategy, where searchers exploit price differences for the same asset across different decentralized exchanges (DEXs) or liquidity pools. A bot detects a mispricing, executes a series of transactions to buy low on one venue and sell high on another, and pockets the profit, minus gas fees. This activity is generally considered beneficial as it helps align prices across the ecosystem.

A critical MEV opportunity in lending protocols like Aave or Compound. When a borrower's collateral value falls below a required threshold, their position becomes eligible for liquidation. Searchers compete to be the first to submit a liquidation transaction, paying off part of the debt in exchange for seizing the collateral at a discount. This activity is essential for protocol solvency but can be predatory.

A malicious MEV strategy that targets ordinary users. A searcher detects a large pending DEX trade that will move the market price. They then:

• Front-run it: Buy the asset before the user's trade executes.
• Let the user's trade execute, pushing the price up.
• Back-run it: Sell the now more valuable asset immediately after. The attacker profits from the artificial price movement, while the victim receives a worse price (slippage).

The key actors in the MEV supply chain:

• Searchers: Entities (often bots) that run algorithms to detect profitable MEV opportunities and construct transaction bundles.
• Builders: Specialized block builders that receive these bundles from searchers. They compete to construct the most profitable block by ordering transactions to maximize extractable value, which they then propose to validators.

A critical protocol-level design (central to Ethereum's roadmap) that mitigates MEV centralization risks. PBS formally separates the role of block builder (who orders transactions) from the block proposer/validator (who signs the block). This prevents validators from easily capturing all MEV themselves and allows for a competitive, open market for block building. Builders bid for the right to have their block included.

Frontrunning occurs when a searcher sees a pending user transaction (e.g., a large DEX trade) and submits their own transaction with a higher gas fee to execute first, profiting from the anticipated price impact. A sandwich attack is a specific form where the attacker places one transaction before and one after the victim's trade, trapping it to extract value from slippage.

• Example: A user's large ETH→USDC swap is detected in the mempool. A bot frontruns it by buying ETH, causing the user to get a worse price, then immediately sells the ETH after the user's trade completes.

A time-bandit attack is a risk where a miner or validator is incentivized to reorganize the blockchain (reorg) to steal MEV from a previously mined block. This undermines blockchain finality and consensus security.

• Mechanism: If a block contains extremely valuable MEV (e.g., a lucrative arbitrage), a miner might secretly mine a competing chain to capture that value themselves, then release a longer chain to orphan the original block. This is a direct attack on the longest-chain rule and network stability.

Block producers can censor transactions by excluding them from blocks, often to eliminate competition for MEV opportunities or for regulatory compliance. This threatens blockchain neutrality and liveness.

• Forms of Censorship:
  • Mempool Exclusion: Ignoring specific transactions entirely.
  • Top-of-Block MEV: Filling the entire block with proprietary, profitable transactions, leaving no space for regular users.
  • Proposer-Builder Separation (PBS) Risks: In PBS designs, a centralized block builder could become a systemic censor.

The competition to capture MEV directly increases gas fees and network congestion. Searchers engage in priority gas auctions (PGAs), bidding up transaction fees to have their bundles included, which prices out regular users and creates unpredictable fee markets.

• Impact: During periods of high MEV activity, base fees can spike dramatically, making simple transactions economically unviable for average users and degrading the user experience.

The large, consistent revenue from MEV creates significant centralization pressures. Entities with advanced MEV extraction capabilities (specialized software, data feeds, and capital) gain a competitive advantage, leading to validator concentration.

• Consequences: This can reduce the decentralization and censorship-resistance of the network, as profitable validators grow disproportionately and may collude (e.g., in builder cartels).

Consensus-level mechanisms that enforce a canonical, fair ordering of transactions to neutralize time-bandit attacks and sandwich attacks. They define ordering rules (e.g., based on receipt time) that are resistant to manipulation by powerful actors.

• Approaches: Aequitas, Themis, and Wendy propose different fairness definitions.
• Goal: To provide transaction fairness and ordering linearizability, making predatory MEV strategies non-viable.

Non-technical strategies that address MEV's distributional effects and governance risks.

• MEV Burn/Smoothing: Redirecting extracted value to the protocol treasury or distributing it among all validators (e.g., via proposer reward smoothing).
• Governance & Transparency: Tools like EigenPhi and Flashbots Explorer increase visibility into MEV flows.
• User Education: Wallets integrating transaction simulation and warning systems for potentially exploitable trades.

An entity (often a bot) that identifies and constructs profitable MEV opportunities by analyzing the mempool and blockchain state. Searchers create transaction bundles containing their own transactions and submit them to block builders or validators, paying a fee for inclusion. They compete on the sophistication of their algorithms to discover arbitrage, liquidations, and other extractable value.

A specialized node that constructs the contents of a block. In a proposer-builder separation (PBS) model, builders compete to create the most profitable block by accepting bundles from searchers and ordering transactions to maximize MEV revenue. The builder then sells this complete block to a block proposer (validator).

A predatory MEV strategy that targets a single victim transaction. The attacker places one transaction before and one after the victim's trade on a DEX.

• The first transaction buys the asset, driving its price up.
• The victim's trade executes at this inflated price.
• The second transaction sells the asset, profiting from the price impact caused by the victim. This results in increased slippage for the victim.